© Stocksak. Illustration of Japanese yen banknotes taken September 23, 2022. REUTERS/Florence Lo/Illustration
By Leika Kihara
TOKYO, Stocksak – The Bank of Japan plans to keep ultra low interest rates on Friday. This will remind markets it will continue to be a dovish outlier in a wave of central banks tightening their monetary policy. Global recession fears are dampening prospects for a solid economic rebound.
This decision could send the yen to new 32-year lows. It would also draw market attention to the widening gap with the U.S. central banks and European central bank, who are looking at further rate hikes.
According to Stocksak, sources said that while the BOJ will revise slightly its price forecasts for quarterly, they still expect inflation to drop below 2% next fiscal year as fuel and commodity prices rises peak.
According to sources, the nine-member board will likely lower its growth forecasts for next year and this year due to the fallout from global tightening and China’s sharp slowdown. This is because Japan’s export-dependent economy is being weighed down by the global monetary tightening.
Analysts say the revised projections are likely increase market expectations that BOJ will maintain its course in supporting a fragile recovery with ultra low interest rates.
Hiroyuki Ueno (senior economist at SuMi Trust, Tokyo) stated that “Fundamentally, the BOJ won’t change course anytime soon” because of the need to stimulate the demand.
“With a recession in Europe or the U.S., export-oriented Japanese businesses are prepared for a drop in corporate earnings,” he stated.
The BOJ is expected at its two-day meeting to end on Friday to maintain its -0.1% short-term interest rate target and to pledge to keep the 10-year yield at 0%.
Investors will pay attention to Governor Haruhiko Kuroda’s post-meeting briefing, which will provide clues about the timing of an eventual withdrawal from the ultra-loose policies.
The BOJ predicted that core consumer inflation would reach 2.3% in the fiscal year ending March 2023, before slowing down to 1.4% in the next year. It projects that the economy will grow by 2.4% in the current fiscal and rise by 2.0% in its next.
Although it is much lower than other major economies’ core inflation, Japan’s September core consumer inflation reached a new eight-year high at 3%. This was higher than the BOJ’s 2% target for six consecutive months.
Kuroda has stressed that it is important to maintain an ultra-loose stance in view of recent cost-push inflation.
The BOJ’s ultra-easy policies have helped to trigger sharp yen falls that inflate the cost to import already expensive fuel, prompting the government intervention in the market to support the currency.